Gain on sale of rental property

[aolson22]

How do I have a capital gain of over 24,000 for a rental house I sold for less than I paid for it??

[Carl]

When you sell rental property, you are required to recapture the depreciation taken on that property and pay taxes on it in the year of the sale. If you did not depreciate the property, then you are still required to recapture and pay taxes on the depreciation you "should" have taken. So what you may think is a loss, may in fact, be a gain.

In the year you sell the property, the cost basis is reduced by the amount of depreciation taken. If you did not depreciate the property, then the cost basis is still reduced by the depreciation you "should" have taken. If your sale price is more than that adjusted cost basis, you have a taxable gain.

Two things can happen in the tax year you sell the property and recapture the depreciation.

1) The recaptured depreciation is add to, and therefore increases your AGI.

2) The increased AGI has the potential to bump you into the next higher tax bracket. It just depends on the numbers.

[MaryK4]

When you sell your rental property, you must add any depreciation to your basis so you may have a gain.